Food subsidy bill peaks as government clears FCI dues

NEW DELHI: India’s revised food subsidy bill for 2020-21 is now estimated to be a record high of nearly ₹5 lakh crore, not due to enhanced distribution from federally-held food stocks during the pandemic, but because the Union government has paid off a “majority of longstanding debt arrears” of the Food Corporation of India (FCI) amounting to over ₹2 lakh crore, a senior official with knowledge of the matter said.

This is part of a broader policy to eliminate hidden subsidies by accounting for them in the fiscal deficit, a stance spelt out by finance minister Nirmala Sitharaman in the Union Budget 2021-22.

The budget signalled a departure from usual practice, opting to account for full borrowings of the FCI, India’s main grain handling agency, on the budget.

Till last year, the FCI’s heaps of loans to finance its operations for distributing subsidised ration were sourced from the National Small Savings Fund (NSSF).

These borrowings were part of what is known as “extra budgetary resources”, literally outside the budget. Hence, they did not reflect on the fiscal deficit, an accounting trick.

The fiscal deficit is the shortfall in the government’s earnings compared to what it spends. A larger fiscal deficit means the government is saddled with loans. This influences sovereign credit worthiness ratings assigned by global ratings agencies. A larger fiscal deficit tends to increase the government’s borrowing costs.